e-Invoice Exemptions in Malaysia: A Comprehensive Guide

As Malaysia embraces the digital era, one significant stride is the initiation of electronic invoicing (e-Invoicing) led by the Inland Revenue Board of Malaysia (IRBM). This initiative aims to modernise the tax administration process, thus making it more efficient and convenient for businesses and authorities.

However, certain exemptions have been outlined to accommodate unique positions or challenges faced by some entities. This blog delves into the exemptions associated with e-invoicing in Malaysia, offering a clear understanding of their obligations regarding this new system.

Who is required to issue E-Invoice in Malaysia?

Before getting into the exemptions, here are the persons and transactions subject to e-invoicing requirements.

Applicable Entities: E-invoice is mandatory for all taxpayers involved in commercial activities in Malaysia, including associations, bodies of persons, companies, and so on.

Transaction Types Covered

• Suppliers must issue e-Invoices for:
  • All B2B and B2G transactions.
  • B2C transactions upon customer demand.
• All types of transactions, including invoices, debit notes, credit notes, and refunds.

Self-Generation by Buyer: If the supplier is a foreign entity or not subject to e-Invoicing rules in Malaysia, the buyer must self-generate the e-Invoice.

Implementation Timeline

• Companies with an annual turnover exceeding RM 100 million must start generating e-invoices from 1st August 2024.
• Smaller companies will follow suit, starting from January 2025.

Exemptions from implementing e-invoice in Malaysia

The IRBM, in its e-Invoice guideline (Version 2.0), has detailed the exemptions concerning e-Invoicing implementation. These exemptions are crucial as they provide a framework for who is required to comply with the e-invoicing mandate and who is not.

Entities and Persons Exempt from Issuing e-Invoice

The exemptions cover a broad spectrum of individuals and entities. The following are exempted from issuing e-Invoices, including the issuance of self-billed e-Invoices:

• Ruler and Ruling Chief as defined in Section 76 of the Income Tax Act 1967.
• Former Ruler and Ruling Chief, excluding a former Governor or Yang di-Pertua Negara of a State, as defined in the same section of the Act.
• Consorts of a Ruler or Former Ruler of a State with specific titles like Raja Perempuan, Sultanah, Tengku Ampuan, Raja Permaisuri, Tengku Permaisuri, or Permaisuri.
• Government, State government, and state authority.
• Government authority, Local authority.
• Statutory authority and statutory body.
• Facilities provided by the above government, authority, or body, such as hospitals, clinics, multipurpose halls, etc.
• Consular offices and personnel, including diplomatic officers, consular officers, and consular employees.

Types of Income Exempt from E-Invoicing

Besides the suppliers, here are some incomes (or expenses) that don’t require any e-invoice 

• Employment income
• Alimony
• Pension
• Distribution of dividend in specific circumstances
• Scholarship
• Zakat

Reasons for exemption from e-invoice

The exemptions from implementing e-Invoice in Malaysia are provided for several reasons:

• Sovereign Status: Entities such as rulers, ruling chiefs, and their consorts are exempted due to their sovereign status, which involves different legal and administrative frameworks.
• Government Regulations: Government bodies, state authorities, and local authorities are exempted as their financial transactions are governed by specific regulations and accounting practices separate from commercial entities.
• Different Legislative Mandates: Statutory bodies operate under their own legislative mandates and accounting procedures, which does not align with commercial e-invoicing requirements.
• International Agreements: Consular offices and personnel are often subject to diplomatic protocols and international agreements that dictate their financial processes, warranting exemption from commercial invoicing regulations.
• Operational Efficiency: Exempting certain entities and transactions streamlines the e-invoicing implementation process, focusing resources on the most necessary and relevant areas.
• Avoidance of Multiple Reporting: Certain types of income, such as employment income and distributions of dividends, are already subject to other forms of documentation and reporting.

Scholarship

Impact of e-invoice exemptions

There are both positive and negative impact of e-invoice exemptions in Malaysia. Here are some major impacts of exemptions.

1. Exempt entities benefit from reduced administrative burden and cost savings.
2. Enforcement of e-invoicing regulations becomes more challenging with exemptions in place.
3. Exemptions lead to a lack of uniformity in the documentation and SST returns.
4. Exemptions reduce the workload on regulatory officials tasked with overseeing e-invoicing compliance.

Conclusion

The e-invoice exemptions in Malaysia exhibit a nuanced and inclusive approach towards the nation's digitization journey.

As Malaysia forges ahead, understanding these exemptions is crucial for businesses and individuals to ensure full compliance. This blog serves as a resourceful guide for decision-makers, aiding them in making informed decisions regarding e-invoicing implementation and compliance, aligning well with the nation’s digital ambitions. Furthermore, embracing efficient invoicing solutions like those offered by ClearTax can significantly smoothen this transition towards e-invoicing.

ClearTax with its extensive experience across various nations, provides simplified, faster, and more efficient invoicing solutions, making the e-invoicing process compliant and highly efficient. The expertise and services offered by ClearTax serve as a valuable resource for businesses navigating the e-invoicing landscape in Malaysia, ensuring a seamless adaptation to the evolving digital taxation ecosystem.